TCF Financial in Wayzata, Minn., is hoping a new product line aimed at the underbanked will also breathe new life into its once-bustling branches.
The $21 billion-asset company's offering, which is being marketed as ZEO, features a reloadable prepaid card and check-cashing services at its branches, among other things.
TCF is adding its name to a growing list of banks looking to make a profitable play for low-income customers. At least three unnamed banks are planning short-term loan products in hopes of disrupting the payday lending industry.
TCF, in many ways, is putting a new twist on a strategy it has used for decades. The company became known in the industry as the bank of the working class by offering free checking and keeping branches open seven days a week.
"This is something that has been the bread and butter" of TCF, said Chris McGratty, an analyst at Keefe, Bruyette & Woods. TCF, which began testing the product in March, has already seen an uptick in new accounts, he said.
TCF, in designing the new product, is also hoping to increase branch use. In the last five years the company has closed about a fifth of its branches, reducing its network to about 340 locations. ZEO should lure more people into those remaining locations; low-income clients often rely on branch-centric services, such as check cashing and money orders.
"We need to … keep expanding foot traffic," Craig Dahl, TCF's president and chief executive, said in an interview, adding that the role of the company's branches is "continually evolving."
TCF's effort comes at a time when it is facing scrutiny over the way it requires customers to opt-in for overdraft protection. The inquiry, led by the Consumer Financial Protection Bureau, is pending, but industry observers said the absence of overdraft fees in the new product could help TCF score points with skeptical regulators.
Representatives for TCF said the company consulted with regulators while designing ZEO, but they declined to discuss any specifics.
Other banks planning to target the underbanked are waiting to find out the scope of the CFPB's payday lending rule, which is expected to be unveiled next week. Separately, the agency has vowed to scrutinize banks' handling of overdrafts.
TCF's new product does not have a short-term loan offering and there are no plans to offer deposit-advance credit lines.
"Let's first let you manage the money that you have in a way that fits what consumers are working for, and continue to offer pathways into more traditional credit," said Geoff Thomas, TCF's managing director in charge of products and marketing.
It is unclear whether the new product will meaningfully boost fee income at TCF. Noninterest income rose 12% in the first quarter from a year earlier, though it was largely the result of loan sales. Fees and service charges declined.
Much of the product's success could depend on adoption rates. Many banks, eager to boost interchange revenue, have been unable to convince their customers to use reloadable prepaid cards, industry experts said.
"A lot of banks have tried this route," said Emlen Harmon, an analyst at Jefferies. "I haven't seen anybody who has called it an outright win."
TCF, however, seems intent to use the product to bring in new business. Customers who want to open a ZEO account must have a minimum $25 deposit balance and pay a $4 purchase fee. The accounts also include a $4 monthly fee. Clients can also open a savings account with no minimum balance, though deposits must be made at a branch.
Other fees include a 1% fee to cash a government or printed payroll check, and 3% on all other checks; $5 for each money order; and $15 for each transfer or withdrawal from a savings account that exceeds six per billing period.
TCF executives describe the new product as filling a critical void in their community – and in the industry.
"We found there was a need … that was not being provided by the banking industry," said Mike Jones, the company's head of consumer banking. "We're trying to give our customers more choice."